December export grows 5.7% to 21-month high

Merchandise export grew in December for a fourth straight month and was at a 21-month high in absolute terms. Led by a spike in oil prices and improved competitiveness from a weaker rupee, amid muted global demand.

Import growth moderated to a four-month low, owing to sharp decline in that of gold.

Export grew 5.7% in December and import by 0.5%, compared to the year-ago period, leaving a trade deficit of $10.3 billion, showed data issued by the ministry of commerce and industry on Friday. Outbound shipment was $23.8 billion, the highest in close to two years; it was $20 bn in November. Petroleum, engineering, gems & jewellery and pharmaceuticals were the top contributors.

Incidentally, industrial production in November, showed data issued by the Central Statistics Office on Thursday, grew at a 13-month high of 5.7%, however, this was explained more by a low base effect than actual improvement in manufacturing activity.

Non-oil, non-gold import in December rose by 4.4%. Led by coal, electrical & non-electrical machinery and chemicals, suggesting industrial demand and not consumer demand, said ratings agency ICRA.

"Even as the pick-up in merchandise export in December is encouraging, the bulk of the decline in the trade deficit can be attributed to lower gold import. The high growth of export of value added items such as engineering goods is a big positive," said Aditi Nayar, principal economist at ICRA.

After the currency note ban, labour-intensive sectors displayed a mixed trend in December. There was high growth of gems & jewellery, yarn and fabrics, and mild contraction in textiles, carpets and leather items, added Nayar.

Total export for the financial year up to December, the first nine months, touched $198 bn, barely 0.75% higher than the corresponding period last year.

The World Trade Organization had cut its global trade growth forecast for 2017 to 1.8-3.1%, from an earlier estimate of 3.6%. China, the world's largest shipper, is held to be facing a threat with Donald Trump taking over as US president. It reported a 7.7% decline in 2016 exports, its worst since the global economic crisis of 2009.

"We need to be cautious about the Chinese currency devaluation. Since China is facing negative export growth, there might be further devaluation of currency. This will again have adverse impact on our exports," said Sanjay Budhia, co-head of export policy at business chamber CII.

A weaker rupee against the dollar lent competitiveness to Indian export. It went to 67.93 a dollar in December, from Rs 66.62 in September and Rs 67.53 in June.

Pharmaceutical export grew 12.5%, gems and jewellery by 27.9%, engineering goods by 19.9%, and organic and inorganic chemicals by 18.2%.

Gold import shrank by 48.5% in December to almost $2 bn, from $4.4 bn in November, which had been a 23% increase. That November spike was partly due to demonetisation of high-denomination currency — it resulted in a sharp diversion of old Rs 500 and Rs 1,000 notes to buy jewellery on backdated bills.

A sharp increase in oil prices contributed to both higher export and import in value terms. Petroleum export grew 8.2% in December and import rose 14.6%. The Indian basket of oil prices almost doubled to $52.74 a barrel, year-on-year. It was $44.46 a barrel in November and $39.8 in April.

"Global sentiments have started showing positive signs and the US Federal reserve rate hike and demonetisation have had very limited impact on export. Labour-intensive sectors like gems and jewellery, handicrafts, and marine and engineering have shown impressive growth," said S C Ralhan, president, Federation of Indian Export Organisations. He added the economy was on course to touch export of $270-280 bn in this financial year.

Services export growth maintained a healthy pace at $13.3 bn and import grew by $8.3 bn.